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OECD Territorial Reviews: Chihuahua, Mexico 2012

Located at the border with the US, Chihuahua has benefited from FDI and NAFTA. Chihuahua has been one of the richest regions in Mexico and one of the most dynamic in the OECD. However, the region’s FDI-trade link with the USA has also led to some vulnerability to external shocks. The two crises affecting the USA in the past decade affected Chihuahua more than any other state. Despite recent progress in the quality of education, other structural challenges such as lower productivity growth, high inactivity rates and dwindling employment rates have been factors in Chihuahua’s sluggish growth. Chihuahua not only displays large intra-regional and gender inequalities, but also the largest inter-ethnic inequality levels in the country. Chihuahua can gain from a territorial approach to policymaking that integrates sectoral policies, fostering value-added in rural activities, better linking SME-development and FDI-attraction policies, as well as between innovation capacities and applications. The region could also strengthen their recent inclusive governance arrangement with civil society and the private sector. Growth and development can only be possible if the current challenges in insecurity, water shortage and public finance are addressed.

Assessment and Recommendations

Chihuahua has benefited from Mexico’s trade policy change and its geographic position by thus creating a successful economic development model. Chihuahua sits right at the centre of the US-Mexico border sharing one-third of it, giving it direct access to both east and west coast markets in the US. Over the years, this intense international trade gave rise to one of the world’s most dynamic border communities. This advantageous geographic location was the perfect ingredient for Chihuahua to be able to benefit from three different external stimuli. First, in a closed-economy context, the Maquiladora Programme enabled tax-free offshoring operations in border municipalities, which meant that Chihuahua had a key initial advantage over the rest of the country to industrialise. Second, after two decades of successful foreign direct investment (FDI) attraction to the region, Mexico opened up to trade by accessing the General Agreement on Tariffs and Trade (GATT), bringing additional impetus to the region through offshoring operations. Third, in 1994 Mexico signed the North American Free Trade Agreement (NAFTA), which expanded FDI opportunities for Chihuahua and other border states. The region was growing at average annual growth rates exceeding 9% in the 1990s and has become the largest FDI-based manufacturing employer in the country.